Group Operating Results
Group operating results for FY 2011–12 are set out below:
(In US$ millions, except as stated)
2011–12FY
(pro forma) FY
2011–12 FY
2010–11 % change
Revenue 15,615.9 14,005.3 11,427.2 22.6
EBITDA 5,353.3 4,026.3 3,566.8 12.9
EBITDA margin (%) 34.3% 28.7% 31.2% –
EBITDA margin without custom smelting (%) 46.7% 40.6% 44.7% –
Special items (230.2) (230.2) (163.4) (40.9)
Depreciation (1,220.7) (927.3) (554.6) (67.2)
Amortisation (736.8) (481.1) (314.5) (53.0)
Operating profit 3,165.6 2,387.7 2,534.3 (5.8)
Net interest expense (617.1) (420.3) (103.1) (307.7)
Other gains and (losses) (314.2) (314.2) 252.1 (224.6)
Income from associate – 92.2 – –
Profit before taxation 2,234.3 1,745.4 2,683.3 (35.0)
Income tax expense (547.4) (516.7) (649.5) (20.4)
Effective tax rate (%) 24.5% 29.6% 24.2%
-Profit for the year 1,686.9 1,228.7 2,033.8 (39.6)
Minority interest 1,478.9 1,168.9 1,263.0 (7.5)
Minority interest (%) 87.7% 95.1% 62.1% –
Attributable profit 208.0 59.8 770.8 (92.2)
Basic earnings per share
(US cents per share) 76.3 21.9 283.2 (92.3)
Underlying earnings per share
(US cents per share) 209.4 142.0 262.8 (46.0)
Balance Sheet and Cash Flow We continue to have a strong balance sheet with capital employed of US$18.4 billion and net debt of US$10.1 billion. Net debt comprised debt of US$17.0 billion offset by US$6.9 billion of cash and liquid investments. Anticipated future cash flows and undrawn committed facilities of US$2,897.3 million, together with cash and liquid investments of US$6,885.3 million as at 31 March 2012, are expected to be sufficient to meet the ongoing capital investment programme and liquidity requirements of the Group in the near future. The Company continued to maintain its ratings from Standard & Poor’s, Moody’s &
Fitch Ratings are BB, Ba1 and BB+
respectively. The Company generally maintains a healthy net debt-equity ratio and retains flexibility to raise funds as and when required. Even though FY 2011–12 witnessed a rise in debt of US$7.2 billion to fund the Cairn India acquisition and planned expansion programme, our balance sheet remained strong with net gearing of 35.3%.
On a proforma basis, as at 31 March 2012, we had a multiple of 1.9x net debt/EBITDA, 4.5x EBITDA/
gross interest expenses and 2.5x net asset/debt, which reflects a robust and strong balance sheet.
Of our total gross debt of US$17.0 billion, debt at our subsidiaries is US$7.7 billion with the balance in the holding company.
Following the Group structure simplification, debt liability at the holding company reduced by 65% to US$3.2 billion and debt service costs reduced significantly.
Dividend policies at subsidiaries will result in significantly higher dividends at the holding company which will cover debt servicing.
Finance Strategy
The Company’s capital management objectives are to safeguard continuity, maintain a strong credit rating and healthy capital ratios in order to support its business and provide adequate return to shareholders through continuing growth.
The Company sets the amount of capital required on the basis of annual business and long-term operating plans which include capital and other strategic investments. The funding requirement is met through a mixture of equity, internal accruals, convertible bonds and other long-term and short-long-term borrowings.
The Company monitors capital using a gearing ratio, (the ratio of net debt as a percentage of total capital) which at 31 March 2012 was 35.3%.
Our investments are consistent with our policy of investing in funds and banks with a low credit risk and high credit ratings. Investment portfolios of our Indian subsidiaries have been independently reviewed by the rating agency CRISIL as “Very Good”.
We believe our strengthening presence across diverse businesses should further strengthen
our credit profile and we are working towards improving our ratings to investment grade.
Post the acquisition of Cairn India, our priority is to reduce the debt at the holding company level. We are committed to maintain net debt to EBITDA at less than 2.75 times and net gearing below 40% through the cycle, as a prudent measure in our cyclical industry. We achieved net debt to EBITDA of 2.5 times and net gearing of 35% at the end of FY 2011–12. In an effort to further reduce these metrics, we continue to focus on higher EBITDA-free cash flow conversion by prioritising cost control and reviewing the capital expenditure programme.
We have also announced a new simplified corporate structure, which once approved by stake holders and regulatory authorities, should yield significant benefits through a more efficient capital structure, increased flexibility to allocate capital, broader access to markets and enhanced visibility of earnings and cash flow.
The movement in net (debt)/cash in FY 2011–12 is set out below.
(In US$ millions, except as stated) FY
2011–12 FY
2010–11
EBITDA 4,026.3 3,566.8
Operating exceptional items (230.2) (163.4)
Working capital movements 439.2 (652.0)
Increase in operational buyer’s credit 60.1 12.5
Increase/(decrease) in supplier’s credit (124.2) 335.3 Changes in long-term creditors and non-cash items 35.8 128.8
Sustaining capital expenditure (386.2) (239.5)
Sale of tangible fixed assets 23.6 28.3
Net interest paid and dividend received (394.8) 87.1
Tax paid (915.8) (756.6)
Free cash flow 2,533.8 2,347.3
Expansion capital expenditure1 (2,398.2) (2,517.2)
Sale/(purchase) of fixed assets investments (3.9) (25.9)
Acquisition of minorities (60.3) (122.0)
Acquisitions, net of cash & liquid investments acquired (7,115.7) (1,036.7)
Purchase of mining assets (131.8) –
Buyback of shares of Vedanta Resources plc – (128.0)
Dividends paid to equity shareholders (144.0) (129.9)
Dividends paid to minority shareholders (219.7) (87.4)
Convertible Bond transfer and conversion – 430.2
Other movement2 (554.3) 246.5
Movement in net (debt)/cash (8,094.1) (1,023.1)
1 On an accrual basis.
2 Includes foreign exchange movements.
The conversion of EBITDA to free cash was at the rate of 62.9% in FY 2011–12 as compared to 65.8% in FY 2010–11. This decline, despite the release of working capital of approximately US$375.1 million, was due to higher routine capital expenditure and interest payments.
Investing in Organic Growth We spent US$2,398.2 million on capital expenditure for growth projects in FY 2011–12 which was in line with our project capital expenditure spend in FY 2010–11. During the last five years we have invested US$12.6 billion in growth projects.
In its Power business, the Company has decided to pursue only the 1,980MW (3x660MW) thermal coal based power plant at Talwandi Sabo and the project work is progressing well.
We also spent US$386.2 million on routine capital expenditure in FY 2011–12, higher than the previous year’s expenditure of US$239.5 million. This expenditure is for the upkeep of our plant and equipment, to continually optimise and improve operational standards and to increase the scale of our operations.
Return on Operating Capital (‘ROOC’) during FY 2011–12 was 7.7%, lower than the 21.2% generated during FY 2010–11. This reflected the fact that the investment in Cairn generated returns for a period of less than four months (as a subsidiary from 8 December 2011). On an annualised basis, the returns from Cairn stood at 10.7% during the year. ROOC is an important Key Performance Indicator (‘KPI’) for our businesses.
Capital productivity is a high priority and we plan to enhance this ratio by optimising asset performance.
Financial Review continued
Project Capex
Sector Project Production volume Country Completion date Project cost Spent in
FY12 Spent to
31 March 12 Unspent on 31 March 12
Alumina Lanjigarh I Alumina Refinery 1.0mtpa India Completed 1,015.3 – 982.0 33.3
Debottlenecking Lanjigarh I 1.0mtpa India On hold 150.0 1.4 73.7 76.3
Lanjigarh II Alumina Refinery 3.0mtpa India On hold 1,570.0 20.6 825.2 744.8
Aluminium Korba III Smelter 325 KT India 1st metal tapping by Q3 FY 2012–13 720.0 248.4 596.1 123.9
1200MW CPP 1st unit synchronisation in Q1 FY
2012–13 1,100.0 128.3 803.8 296.2
Jharsuguda I Smelter 0.5mtpa & 1215MW CPP India Completed 2,400.0 – 2,324.4 75.6
Jharsuguda II Smelter 1.25mtpa India Progressively by Q3 FY 2013–14 2,920.0 305.5 2,280.8 639.2
Balco Coal Block 211mt India Progressively by FY 2012–13 150.0 7.2 12.0 138.0
Power Talwandi Sabo Power Project 1,980MW India FY 2013–14 (1st unit synchronisation in
Q4 FY 2012–13) 2,150.0 612.0 973.5 1,176.5
HZL WPP Project 150MW India Completed 190.0 113.9 190.0 –
SEL IPP 2,400MW India 4th unit synchronised in Q4 FY 2011–12 1,900.0 136.1 1,651.7 248.3
Zinc Smelting 210ktpa Zinc India Completed 900.0 46.6 799.8 100.2
100ktpa Lead India Completed
160MW CPP India Completed
Mining RA 5 to 6mtpa India Completed
SK –2mtpa India Progressive
Copper KCM KDMP Project 7.5mtpa Zambia Q3 FY 2012–13 973.0 33.4 830.2 142.8
KCM Nchanga Smelter 311ktpa Zambia Completed 473.0 11.8 472.3 0.7
SIIL Expansion Project 400ktpa India EC awaited 367.2 2.7 109.8 257.4
160MW CPP India 1st unit in Q1 FY 2012–13, 2nd unit in
Q2 FY 2012–13 132.8 – 150.0 –
Iron Ore Pig Iron Expansion 375ktpa India Q1 FY 2013 150.0 54.3 138.7 11.3
Sesa Iron Ore Mine Expansion 36mt India FY 2012–13 500.0 51.9 128.9 371.1
Infrastructure Vizag Coal Berth India FY 2012–13 150.0 39.0 58.7 91.3
Paradeep Port India – 88.0 – – 88.0
Total 17,999.3 1,889.7 13,377.0 4,622.3
Other projects 508.5 558.9
Total 17,999.3 2,398.2 13,935.9
Based on the expansion projects currently under way, approximately US$4.6 billion of funds are required to complete these projects over the next three years. This will be financed from existing cash resources, internal accruals and project financing.
In the coming year, US$4,152 million of debt falls due for repayment. Our cash and liquid investments, free cash generation and funds investment are sufficient to meet our capital and debt commitments. We have cash and liquid investments of US$6,885.3 million as at 31 March 2012 along with unused funding facilities of US$2,897.3 million, providing good liquidity.
Acquisitions
On 8 December 2011 we completed the acquisition of Cairn India Limited by acquiring 59% for an aggregate consideration of US$8.67 billion.
A 39% stake is held by Vedanta Resources plc with the balancing 20% stake held through the Group’s subsidiary Sesa Goa. Roughly 50%
of the acquisition consideration was funded through internally generated cash flows, and only U$4.43 billion was funded through external debt.
In accordance with the requirement of the reverse takeover rules prescribed under the UK Listing Authority (‘UKLA’), an application was made to the UKLA and the London Stock Exchange for readmission to listing of the Company’s shares on the official list.
During the FY 2011–12, Sesa Goa acquired Iron Ore deposits in Liberia in Western Africa for a total consideration of US$90 million. In addition US$25 million of licence fees was paid to the Government of Liberia. This iron ore project comprises three deposits in Bomi Hills, Bea Mountain and Mano River with estimated deposits of over 1 billion tonnes of iron ore.
On 1 March 2012, Vedanta Resources plc, through its subsidiary Sesa Goa, acquired a 100% stake in Goa Energy Private Limited (‘GEPL’) from Videocon Industries at a consideration of US$9.5 million. The operating and financial results of GEPL have been consolidated from 1 March 2012. GEPL is in the business of power generation.
We continue to focus on enhancing the returns to our shareholders through periodic buyback of shares. During FY 2011–12 we had spent US$60.3 million on buying back shares in Sterlite.
The Government of India (‘GoI’) holds the minority stake in two of our Group companies – HZL (29.5%) and BALCO (49%). In line with our commitment to enhance the returns to our shareholders, we approached the GoI communicating our desire to purchase its stake in both companies. Whilst the GoI did not respond, we believe purchasing this stake would further improve the returns to our stakeholders.
Project Capex
Sector Project Production volume Country Completion date Project cost Spent in
FY12 Spent to
31 March 12 Unspent on 31 March 12
Alumina Lanjigarh I Alumina Refinery 1.0mtpa India Completed 1,015.3 – 982.0 33.3
Debottlenecking Lanjigarh I 1.0mtpa India On hold 150.0 1.4 73.7 76.3
Lanjigarh II Alumina Refinery 3.0mtpa India On hold 1,570.0 20.6 825.2 744.8
Aluminium Korba III Smelter 325 KT India 1st metal tapping by Q3 FY 2012–13 720.0 248.4 596.1 123.9
1200MW CPP 1st unit synchronisation in Q1 FY
2012–13 1,100.0 128.3 803.8 296.2
Jharsuguda I Smelter 0.5mtpa & 1215MW CPP India Completed 2,400.0 – 2,324.4 75.6
Jharsuguda II Smelter 1.25mtpa India Progressively by Q3 FY 2013–14 2,920.0 305.5 2,280.8 639.2
Balco Coal Block 211mt India Progressively by FY 2012–13 150.0 7.2 12.0 138.0
Power Talwandi Sabo Power Project 1,980MW India FY 2013–14 (1st unit synchronisation in
Q4 FY 2012–13) 2,150.0 612.0 973.5 1,176.5
HZL WPP Project 150MW India Completed 190.0 113.9 190.0 –
SEL IPP 2,400MW India 4th unit synchronised in Q4 FY 2011–12 1,900.0 136.1 1,651.7 248.3
Zinc Smelting 210ktpa Zinc India Completed 900.0 46.6 799.8 100.2
100ktpa Lead India Completed
160MW CPP India Completed
Mining RA 5 to 6mtpa India Completed
SK –2mtpa India Progressive
Copper KCM KDMP Project 7.5mtpa Zambia Q3 FY 2012–13 973.0 33.4 830.2 142.8
KCM Nchanga Smelter 311ktpa Zambia Completed 473.0 11.8 472.3 0.7
SIIL Expansion Project 400ktpa India EC awaited 367.2 2.7 109.8 257.4
160MW CPP India 1st unit in Q1 FY 2012–13, 2nd unit in
Q2 FY 2012–13 132.8 – 150.0 –
Iron Ore Pig Iron Expansion 375ktpa India Q1 FY 2013 150.0 54.3 138.7 11.3
Sesa Iron Ore Mine Expansion 36mt India FY 2012–13 500.0 51.9 128.9 371.1
Infrastructure Vizag Coal Berth India FY 2012–13 150.0 39.0 58.7 91.3
Paradeep Port India – 88.0 – – 88.0
Total 17,999.3 1,889.7 13,377.0 4,622.3
Other projects 508.5 558.9
Total 17,999.3 2,398.2 13,935.9
Our debt maturity now averages 3.46 years as at 31 March 2012, as compared with three years as at 31 March 2011. Our current debt maturity profile in US$ million is outlined below:
Particulars Debt at Plc
Companies Debt at
Subsidiaries Total
FY 2012–13 996 3,156 4,152
FY 2013–14 1,950 456 2,406
FY 2014–15 1,383 1,079 2,462
FY 2015–16 310 410 720
FY 2016–17 2,515 269 2,784
FY 2017–18 onwards 2,121 2,310 4,431
Total 9,275 7,680 16,955
Operations India
1 Debari smelter 2 Chanderiya smelters 3 Rampura-Agucha mine 4 Rajpura Dariba mine
and smelter and Sindesar Khurd mine
ZincStrong demand created by growth from emerging economies more than offset weaker demand from developed economies, leading to global zinc demand growth of 4% in 2011 reaching 12.5mt. Growth focused on near-term demand is at a similar level of 4–5% on the back of strong demand from emerging economies.
It is predicted that shortly the net surplus position may turn into a net deficit position. Closure of several mines at the end of their mine life may significantly impact the supply/
demand equation. It is predicted that this could happen in 2014–15.
India, the home market for our